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- The most (and least) popular reason why investors applied for a bridging loan in Q2 2018
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Buy-to-Let Landlords Feel the Squeeze as Lending Restrictions Tightened
It wasn’t long ago that it seemed as if an unprecedented spike in buy-to-let investment interest was here to stay. Investors at all levels were going crazy for the kinds of low-interest financial products never previously made available, spelling good times for property investors, bad times for first-time buyers on the lookout for affordable inventory.
However, ‘here to stay’ it just wasn’t to be, as figures compiled over the past few months have shown a trend in landlord landing that’s actually gone into reverse. According to figures shared by the Nationwide Building Society, the buy-to-let boom seems to have come to a screeching halt. Whereas the six months running up to September 2015 saw total buy-to-let borrowing of £2.9 billion, the figure feel to £2.8 billion for the same period this year. That’s according to the Mortgage Works, the buy-to-let subsidiary of Nationwide.
Why the sudden slowdown? Well, the lender stated that new affordability tests being rolled out across the industry are quite simply making it more difficult for landlords to gain access to the capital they need. This, in accordance with changes to tax relief set to go live next April, which could make the buy-to-let industry far more expensive for thousands of landlords.
“The buy-to-let sector is going through a period of substantial change resulting from new rules on landlord taxation [and] guidance on underwriting and affordability standards,” said Nationwide chief executive Joe Garner.
For borrowers looking to work with Nationwide, the prior 80% of the property’s value the borrower could apply for has been cut to 75%, while the minimum qualifying rental income of 125% the mortgage payment has been significantly hiked to 145%. This in turn has made it impossibly expensive to borrow for buy-to-let purposes in the UK’s higher-price property markets, including London.
And it’s not only Nationwide that’s clamping down on buy-to-let borrowing. Barclays and Santander have both announced the implementation of tougher lending restrictions for landlords, which over the coming weeks will make it harder and more expensive for investors to snap up properties.
On the plus side for property owners, Nationwide predicted that the coming year will see a gradual increase in house prices, though at a relatively modest pace.
“A less certain economic outlook may soften demand but prices will continue to be supported by low interest rates and limited supply of new homes,” the bank stated, predicting rises of between 3% and 6% over the coming 12 months.
As buy-to-let lending via conventional channels becomes increasingly difficult and expensive, it’s hardly surprising that more investors than ever before are considering alternative options. The past few years have seen an enormous spike in bridging loans applications and general interest, from those looking to access the capital they need in a manner that’s fast, affordable, convenient and flexible. Once again, the tightening of borrowing restrictions by banks is expected to drive more customers the way of bridging loans providers than ever before.